Hong Kongers’ demand for UK property as homes to live in rather than just investment has spurred the strongest transaction numbers and price growth in a decade.
The United Kingdom has enjoyed tremendous demand over the last 18 months from Asian buyers, in particular from Hong Kong. The Stamp Duty Land Tax Holiday helped to stoke demand. What resulted was the strongest transaction numbers and price growth in a decade.
After initially deserting city centres, people began returning mid-2021, as offices reopened. This led to vacancy rates plummeting in London and city centres of major regional cities, such as Birmingham and Manchester.
Due to cost inflation, building activity has slowed in many parts of the country, and is expected to take two or three years to recover to pre-pandemic levels, which should keep pressure on property prices over the next few years.
Loans are easier to get, property options more plentiful and a stronger presence of local professionals all help navigate a property purchase more transparently.
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The UK Government offering a pathway to citizenship for BN(O) passport holders further helped to boost Hong Kong demand for UK property.
Singapore and Malaysia investors were less active in the period from January 2020 to August 2021, compared with Hong Kong. There has, however, been a pickup in interest and buyer activity towards the end of 2021, as travel resumed and vaccination rates improved.
Market Trends
According to Rightmove, UK’s rental values accelerated by an average of 8.6% and, after a subdued 2020, some city centres recovered strongly, up over 10% since the start of the pandemic.
The UK has also enjoyed robust property price growth, with year-on-year price growth to October 2021 at 10.2%, according to HM Land Registry (HMLR) figures.
London
The capital had seen a drop in prices and in rental growth up until around the middle of 2021, as people relocated to more spacious places in outer London and beyond. However, since people started returning to the office in the capital, purchasing and renting activity reignited. On a 12-month basis, the capital still lags compared to the rest of the UK, though expect this to improve.
With monthly commuter numbers on the London underground still around half of pre-pandemic figures, there is still further room for growth. The capital could very well lead the nation in 2022 as it awakens from its slumber.
Of course, recovery will be subject to how long the current Omicron outbreak lasts, but with vaccine and booster shots levels higher than when previous strain outbreaks occurred, this should be just a speed bump in London’s property market recovery.
London
In the 12 months leading to October 2021, London grew by 6.2% (1.4% for inner London, 7.7% for outer London), as per HMLR figures.
Birmingham
In the 12 months to October 2021, Birmingham property prices grew by 7.9%, according to HMLR figures. The city centre rental market growth was also one of the most resilient, dropping 5% early on in the pandemic, before recovering and is now 10% above pre-pandemic levels. Birmingham has seen the strongest increase in demand amongst regional city centres in the 12 months to September 2021, according to data from Rightmove. This trend is expected to continue in 2022.
New supply of dwellings in Birmingham declined for the second year in a row, which should put further pressure on prices into 2022.
Birmingham
Manchester
According to HMLR, Greater Manchester prices have performed above the UK average growing by 12.7% in the 12 months to October 2021. Strong growth will continue in 2022, as the northern powerhouse remains an investor favourite.
City centre rental growth hasn’t been as strong as other locations, such as Birmingham, perhaps as there was more supply to soak up. With that said, data from Rightmove shows that rents have grown 4% since the onset of the pandemic and it has the second highest improvement in demand (behind only Birmingham) from September 2020 to September 2021.
Liverpool
Liverpool has been a strong performer over the last 12 months, posting annual growth of 17.9% in the year to October 2021. Despite this, Liverpool’s average property price is still around 20% below bigger cities, such as Manchester and Birmingham.
Apartments are growing the fastest of all property types at almost 1.5% above the average and nearing 20% yearon-year growth.
Ashford
Located in Kent, and boasting desirable green surroundings, Ashford was one of the beneficiaries of the exodus from London. At one point, it was seeing property price growth of over 10%. In the 12 months to October 2021, Ashford saw annual price growth of 8.1%.
Looking into the future, Ashford has some pretty compelling attributes to continue the growth including double the national average population growth projection; lower than average unemployment; a stop on the Eurostar and a £250 million city centre changing development that includes film studios that may see Netflix / Amazon / HBO set up shop in Ashford, boosting employment and growth further. (refer to Chart 1 & table)
Other matters
Taxes
A non-resident stamp duty surcharge of 2% was introduced by the UK government in April 2021. However, even with this additional stamp duty, it is still much lower than foreign buyer taxes in many countries around the world (including Australia). When compared to buying a second home or an investment property in Singapore or Hong Kong, the stamp duty taxes are much lower. A Singaporean buying their 3rd home in Singapore can expect to pay 25% additional buyers stamp duty (in addition to regular stamp duty). (refer to Chart 2)
Loans
Getting a mortgage is relatively easy for Asian residents. Buyers have ready access to mortgage options at LoanTo-Value (LTV) of 65% to 75% in the UK and, in some cases, from their own bank in Asia. Interest rates are also competitive and getting a loan in cities around the UK (not just London) is also possible. Buyers should be reminded that loan processing times can vary between lenders – ensure all required documents are submitted well ahead of expected settlement date.
Accessibility of services
Buying in a different country, in a different time zone, not to mention a different regulatory environment can be difficult to navigate.
Over the years, more and more companies servicing Asian property investors have set up in various countries around the region. It’s now easier than ever to get professional advice on UK property investment, to speak to a lawyer in Asian time zone, to arrange a mortgage and to engage a property manager. With the emergence of proptech companies, such as GetGround, buyers can also purchase in a tax efficient company structure, with costs around 10% of the traditional route. All services have representation in Asia and have local language speakers.
Exhibition activity
Many investors learn about overseas properties at property exhibitions; typically a weekend event where prospective purchasers can learn all about UK property trends and the project presented in the comfort of a prime hotel venue. The various lockdowns and restrictions have limited the number of exhibitions, except in some locations, such as Hong Kong.
During 2021, there have been around 800 exhibitions for UK property in the city. Buyers were offered hundreds of projects in over 50 different cities. As the year drew to a close, some exhibitions resumed in Singapore and Malaysia as well. We’ve also seen more and more educational and private seminars being organised too, providing a more intimate (and less commercial) experience.
Taxes and Loans
When buying a second and subsequent home, many Asian countries and cities levy a very high stamp duty, even for local citizens and PRs. Hong Kong and Singapore, for example, have very high additional stamp duty taxes for 2nd and subsequent properties of 15% to 35%. Even with foreign buyer stamp duty surcharges, investing in the UK or Australia is comparatively more affordable and accessibility to loans provides comfort and transparency to Asian investors.
HK BNO
The UK Government has made it easier to immigrate to the country for holders of Hong Kong BN(O) passports, creating a 5 + 1 year pathway to citizenship. That has helped to make UK property extremely popular in the city – accounting for around 50% of overseas property exhibitions held throughout 2021 in the city. On average, prior to May 2020, UK projects would account for 10% – 20% of overseas property exhibitions in Hong Kong.
The HK BN(O) buyer is typically a different demographic to the traditional investor from Hong Kong. Buying more as a home to live in, rather than straightforward investment, considerations such as employment, local community and schooling options are more prominent.
The property type as well as price points are also different from investors. For this buyer group, families are typically considering larger apartments, even semi-detached and detached houses. London zones 3-6 have proven more popular compared to zones 1-2, for its affordability and accessibility to
open spaces.
Technology
Developers’ and agents’ technology adoption has accelerated over the last 12 – 18 months, driven, in part, by travel restrictions. From virtual tours on
Zoom, to immersion rooms and VR, these all help buyers to get a better idea of what they are purchasing, without physically visiting the property location.
Increased transparency and accessibility around data and research are also helping buyers to better understand the market and make more insightful
investment decisions. This has also helped investors to learn about alternative investment locations beyond London.
Property investment in the UK is more accessible than it has been in several years. Loans are easier to get, property options more plentiful and a stronger presence of local professionals all help navigate a property purchase more transparently.
As interest rates are increasing all around the world, inflation is likely to persist. Uncertainty also remains around the pandemic and smart investors will put their money in property investments in safe havens such as Australia and the UK that offer much to tackle these challenges. APR
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